UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-815 E. I. du Pont de Nemours and Company (Exact Name of Registrant as Specified in Its Charter) Delaware 51-0014090 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1007 Market Street, Wilmington, Delaware 19898 (Address of Principal Executive Offices) (302) 774-1000 (Registrant's Telephone Number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No 680,562,653 shares of common stock, $0.60 par value, were outstanding at July 31, 1994. 1 Form 10-Q E. I. DU PONT DE NEMOURS AND COMPANY Table of Contents Page ---- Part I Item 1. Financial Statements Consolidated Income Statement ................................. 3 Consolidated Statement of Cash Flows .......................... 4 Consolidated Balance Sheet .................................... 5 Notes to Financial Statements ................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Results ............................................. 7 Industry Segment Performance .................................. 7 Consolidated Industry Segment Information ..................... 9 Financial Condition ........................................... 10 Part II Item 1. Legal Proceedings ...................................... 10 Item 6. Exhibits and Reports on Form 8-K ....................... 12 Signature ......................................................... 13 Exhibit Index ..................................................... 14 Computation of Ratio of Earnings to Fixed Charges ................. 15 2 Form 10-Q PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS E. I. DU PONT DE NEMOURS AND COMPANY AND CONSOLIDATED SUBSIDIARIES Three Months Ended Six Months Ended CONSOLIDATED INCOME STATEMENT<Fa> June 30 June 30 - ------------------------------------------------------------------------------------------------- (Dollars in millions, except per share) 1994 1993 1994 1993 - ------------------------------------------------------------------------------------------------- SALES ............................................ $10,161 $9,546 $19,351 $18,616 Other Income ..................................... 278 153 483 361 ------- ------ ------- ------- Total ........................................ 10,439 9,699 19,834 18,977 ------- ------ ------- ------- Cost of Goods Sold and Other Expenses ............ 7,492 7,100 14,167 13,872 Selling, General and Administrative Expenses ..... 709 807 1,373 1,549 Depreciation, Depletion and Amortization ......... 670 683 1,373 1,360 Exploration Expenses, Including Dry Hole Costs and Impairment of Unproved Properties .......... 53 94 112 150 Interest and Debt Expense ........................ 148 176 290 320 ------- ------ ------- ------- Total ........................................ 9,072 8,860 17,315 17,251 ------- ------ ------- ------- EARNINGS BEFORE INCOME TAXES ..................... 1,367 839 2,519 1,726 Provision for Income Taxes ....................... 575 323 1,085 717 ------- ------ ------- ------- NET INCOME ....................................... $ 792 $ 516 $ 1,434 $ 1,009 ======= ====== ======= ======= EARNINGS PER SHARE OF COMMON STOCK<Fb>............ $ 1.16 $ .76 $ 2.10 $ 1.49 ======= ====== ======= ======= DIVIDENDS PER SHARE OF COMMON STOCK .............. $ .44 $ .44 $ .88 $ .88 ======= ====== ======= ======= See page 6 for Notes to Financial Statements. 3 Form 10-Q Six Months Ended CONSOLIDATED STATEMENT OF CASH FLOWS<Fa> June 30 - --------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 - --------------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATIONS Net Income ........................................................ $ 1,434 $ 1,009 Adjustments to Reconcile Net Income to Cash Provided by Operations: Depreciation, Depletion and Amortization ...................... 1,373 1,360 Dry Hole Costs and Impairment of Unproved Properties .......... 36 71 Other Noncash Charges and Credits - Net ....................... (66) 17 Change in Operating Assets and Liabilities - Net .............. (107) (350) ------- ------- Cash Provided by Operations ................................. 2,670 2,107 ------- ------- INVESTMENT ACTIVITIES Purchases of Property, Plant and Equipment ........................ (1,305) (1,839) Investment in Affiliates .......................................... (43) (50) Miscellaneous - Net ............................................... 171 344 ------- ------- Cash Used for Investment Activities ......................... (1,177) (1,545) ------- ------- FINANCING ACTIVITIES Dividends Paid to Stockholders .................................... (603) (600) Net Increase in Borrowings ........................................ 7 1,185 Common Stock Issued in Connection with Compensation Plans ......... 75 47 ------- ------- Cash Provided by (Used for) Financing Activities ............ (521) 632 ------- ------- Effect of Exchange Rate Changes on Cash ............................. 78 (53) ------- ------- INCREASE IN CASH AND CASH EQUIVALENTS ............................... $ 1,050 $ 1,141 ======= ======= See page 6 for Notes to Financial Statements. 4 Form 10-Q CONSOLIDATED BALANCE SHEET<Fa> June 30 December 31 - --------------------------------------------------------------------------------------------- (Dollars in millions, except per share) 1994 1993 - --------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and Cash Equivalents .................................... $ 2,290 $ 1,240 Accounts and Notes Receivable ................................ 5,537 4,848 Inventories<Fc>............................................... 3,832 3,818 Prepaid Expenses ............................................. 288 231 Deferred Income Taxes ........................................ 514 762 ------- ------- Total Current Assets ....................................... 12,461 10,899 PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation, depletion and amortization (June 30, 1994 - $27,388; December 31, 1993 - $26,503) ................................. 21,166 21,423 INVESTMENT IN AFFILIATES ....................................... 1,704 1,607 DEFERRED INCOME TAXES .......................................... 92 198 OTHER ASSETS ................................................... 2,863 2,926 ------- ------- TOTAL ...................................................... $38,286 $37,053 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable ............................................. $ 2,530 $ 2,444 Short-Term Borrowings and Capital Lease Obligations .......... 2,878 2,796 Income Taxes ................................................. 459 321 Other Accrued Liabilities .................................... 3,645 3,878 ------- ------- Total Current Liabilities .................................. 9,512 9,439 LONG-TERM BORROWINGS AND CAPITAL LEASE OBLIGATIONS ............. 6,543 6,531 OTHER LIABILITIES .............................................. 8,356 8,200 DEFERRED INCOME TAXES .......................................... 1,541 1,466 ------- ------- Total Liabilities .......................................... 25,952 25,636 ------- ------- MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ................ 194 187 ------- ------- STOCKHOLDERS' EQUITY Preferred Stock .............................................. 237 237 Common Stock, $.60 par value; 900,000,000 shares authorized; shares issued at June 30, 1994 - 680,439,757; December 31, 1993 - 677,577,437 408 407 Additional Paid-In Capital ................................... 4,738 4,660 Reinvested Earnings .......................................... 6,757 5,926 ------- ------- Total Stockholders' Equity ................................. 12,140 11,230 ------- ------- TOTAL ...................................................... $38,286 $37,053 ======= ======= See page 6 for Notes to Financial Statements. 5 Form 10-Q NOTES TO FINANCIAL STATEMENTS (Dollars in millions) [FN] <Fa>These statements are unaudited, but reflect all adjustments that, in the opinion of management, are necessary to provide a fair statement of the financial position, results of operations and cash flows for the dates and periods covered. All such adjustments are of a normal recurring nature. Certain reclassifications of 1993 data have been made to conform to 1994 classifications. <Fb>Earnings per share are calculated on the basis of the following average number of common shares outstanding. Six Months Ended June30: 1994 -- 679,204,899 1993 -- 675,997,819 <Fc>Inventories June 30 December 31 ----------- 1994 1993 ------- ----------- Chemicals .................................. $ 195 $ 250 Fibers ..................................... 639 571 Polymers ................................... 514 550 Petroleum .................................. 1,381 1,367 Diversified Businesses ..................... 1,103 1,080 ------ ------ Total .................................... $3,832 $3,818 ====== ====== 6 Form 10-Q Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Results of Operations (1) Financial Results: Net income for the second quarter of 1994 was $792 million, or $1.16 per share, a record high for any quarter, up 53 percent from the $516 million, or $.76 per share, earned in the second quarter 1993. Net income for the first six months of 1994 was $1.4 billion, a record $2.10 per share, compared to $1.0 billion, or $1.49 per share, in the same period last year. Excluding nonrecurring charges from both periods, second quarter 1994 net income was up 56 percent, and first half 1994 net income was up 48 percent. First half sales totaled $19.4 billion, up 4 percent. The earnings reflect efforts to improve productivity and grow the company's businesses, while maintaining tight constraints on spending in a very competitive market place. Most of DuPont's businesses performed very well during the current quarter, particularly in the United States and Europe, even though selling prices remain under pressure and are below last year's levels. (2) Industry Segment Performance: The following text and accompanying "Consolidated Industry Segment Information" table compare segment results for the second quarter of 1994 with the same period last year. Sales for the second quarter were $10.2 billion, up 6 percent from prior year. Petroleum segment sales were up 6 percent on higher oil volumes outside the United States and improved U.S. refinery operations. Combined segments other than Petroleum were up 7 percent, reflecting 10 percent higher volume, partly offset by 3 percent lower selling prices. o Chemicals segment earnings were $101 million, up $10 million, or 11 percent, reflecting 4 percent higher sales and lower costs. Sales volume increased 9 percent, while selling prices declined 5 percent. o Fibers segment earnings of $177 million were up $67 million, or 61 percent, reflecting improvements in nylon, aramids, and nonwovens. Segment sales were 13 percent higher. Excluding additional sales from the acquisition of ICI's nylon business, sales were up 3 percent, reflecting 6 percent higher volume, partly offset by 3 percent lower prices. 7 Form 10-Q o Polymers segment earnings were $183 million, up $76 million, or 71 percent from last year. Packaging, industrial, and engineering polymers improved, reflecting lower costs and higher sales. Adjusting for the absence of sales from the divested acrylics and polyethylene businesses, segment sales increased 13 percent, due to 16 percent higher volume, partly offset by 3 percent lower prices. o Petroleum segment earnings of $201 million were up $23 million, or 13 percent. After adjusting 1993 results to exclude a nonrecurring after-tax charge of $21 million related to the sale of petroleum producing properties, earnings were up slightly, despite significantly lower refined product margins and lower crude oil prices. Upstream earnings were $153 million, up 19 percent, reflecting higher volumes, principally outside the United States, and lower operating and dry hole costs, partly offset by lower crude oil prices. Downstream earnings were $48 million, down 31 percent, on lower worldwide refined product margins. o Diversified Businesses segment earnings totaled $208 million, including an after-tax charge of $47 million, or $.07 per share, reflecting an update of the estimate of costs related to the recall of "Benlate" DF 50 fungicide. This update is based on recent trial results, settlement experience, and the rate of spending on litigation associated with the recall. Excluding this charge, earnings were $255 million, up $134 million, or 111 percent from the prior year. This reflects higher sales and lower costs in crop protection chemicals, a significant turnaround in printing and publishing, and recovery of coal earnings which were adversely affected last year by strikes. Segment sales were up 10 percent after adjusting for prior-year divestiture of the sporting goods business. Higher sales volume, up 14 percent, was partly offset by 4 percent lower prices. 8 Form 10-Q E. I. DU PONT DE NEMOURS AND COMPANY AND CONSOLIDATED SUBSIDIARIES Three Months Ended Six Months Ended CONSOLIDATED INDUSTRY SEGMENT INFORMATION June 30 June 30 - ---------------------------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 1994 1993 - ---------------------------------------------------------------------------------------------------------------- SALES - ----- Chemicals ........................................ $ 959 $ 922 $ 1,807 $ 1,781 Fibers ........................................... 1,722 1,530 3,367 2,977 Polymers ......................................... 1,619 1,527 3,102 2,987 Petroleum ........................................ 4,139 3,923 8,001 7,717 Diversified Businesses ........................... 1,722 1,644 3,074 3,154 ------- ------ ------- ------- Total ........................................ $10,161 $9,546 $19,351 $18,616 ======= ====== ======= ======= AFTER-TAX OPERATING INCOME - -------------------------- Chemicals ........................................ $ 101 $ 91 $ 184 $ 160 Fibers ........................................... 177 110 321 212 Polymers ......................................... 183 107 330 184 Petroleum ........................................ 201 178<Fa> 416 410<Fa><Fb> Diversified Businesses ........................... 208<Fc> 121 356<Fc> 228 ------- ------ ------- ------- Total ........................................ 870 607 1,607 1,194 Interest and Other Corporate Expenses Net of Tax ............................ (78) (91) (173) (185) ------- ------ ------- ------- NET INCOME ....................................... $ 792 $ 516 $ 1,434 $ 1,009 - ---------- ======= ====== ======= ======= <FN> <Fa>Includes $21 loss from sale of petroleum producing properties. <Fb>Includes $32 gain from exchange of North Sea properties. <Fc>Includes $47 charge associated with "Benlate" DF 50 fungicide recall. 9 Form 10-Q (b) Financial Condition at June 30, 1994 The following comments pertain to the "Consolidated Statement of Cash Flows." DuPont recorded a net cash inflow from Operations and Investment Activities of $1.5 billion in the first half 1994, as compared with $562 million for the same period last year. This largely reflects higher net income and reduced capital expenditures. Dividend payments totaled $603 million, leaving a net inflow of $890 million. This inflow plus other inflows related to Financing Activities and the Effect of Exchange Rate Changes on Cash resulted in an increase in Cash and Cash Equivalents of $1.1 billion. Consolidated borrowings (excluding capital lease obligations) were $95 million higher than year-end 1993. Capital expenditures for plant, property and equipment were $1.3 billion during the first half of 1994. The original 1994 capital expenditures budget of $3.4 billion remains unchanged. The company increased its common stock dividend by 6.8 percent from $.44 to $.47 per share effective in the third quarter 1994. Certain ratios are shown below: At 6/30/94 At 12/31/93 ---------- ----------- Debt Ratio (total debt to total capitalization) 43.3% 45.0% Current Ratio (current assets to current liabilities) 1.3:1 1.2:1 Days sales outstanding averaged 38 days in the second quarter, down one day from both the first quarter of 1994 and the second quarter of 1993. The ratio of earnings to fixed charges is 6.5 for the first six months of 1994. The ratio is up from 2.0 for the year 1993. The 1993 ratio reflects $1.8 billion (pretax) of restructuring charges. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS In 1991, DuPont received claims by growers that use of "Benlate" DF 50 fungicide had caused crop damages. Based on the belief that "Benlate" DF 50 would be found to be a contributor to the claimed damage, DuPont paid claims. In 1992, after 18 months of extensive research, DuPont scientists concluded that "Benlate" DF 50 was not responsible for plant damage reports received since March 1991. Concurrent with these research findings, DuPont stopped paying claims relating to those reports. To date, DuPont has been served with more than 550 lawsuits in several jurisdictions, principally 10 Form 10-Q Florida, Hawaii, and Puerto Rico, by growers who allege plant damage from using "Benlate" DF 50 fungicide. DuPont has recently settled a block of 59 cases in addition to the block of 220 cases settled earlier this year. In the three jury trials in 1994, juries in Florida and Alabama found no product defect and no damages attributable to "Benlate". Over half of the lawsuits bought against the company since 1991 have been disposed of. Where juries have in previous years awarded growers any damages, those damages have been, on average, less than a third of what they sought, and growers have been found to share responsibility for their claimed losses. DuPont believes that "Benlate" DF 50 fungicide did not cause the alleged damages and intends to continue to prove this in ongoing matters. Since 1989, DuPont has been served with approximately ninety lawsuits in several jurisdictions, principally in Texas, Florida, Maryland, and Arizona, alleging damages as a result of leaks in certain polybutylene plumbing systems. Two nationwide class actions have been filed in state and federal courts in Houston, Texas, but neither has been certified as of this date. In most cases, DuPont is a codefendant with Shell, Hoechst-Celanese and other parts manufacturers. The polybutylene plumbing systems consist of flexible pipe extruded from polybutylene connected by fittings made from acetal. Shell Chemical is the sole producer of polybutylene; the acetals are provided by Hoechst-Celanese and DuPont. DuPont entered the market in 1983 and it is not known as to the number of commercial or dwelling units that have polybutylene plumbing systems, or the number of commercial or dwelling units that have DuPont's product in their plumbing systems. During 1994, DuPont settled a majority of the Texas lawsuits. Presently, DuPont has eighteen active homeowner lawsuits and twenty-two relatively smaller subrogation lawsuits with a total of 1,196 plaintiffs. There have been fifty-six settlements and one dismissal. DuPont has not been to trial in any case. On October 18, 1991, the U.S. Environmental Protection Agency (EPA) issued an Administrative Order under the Resource Conservation and Recovery Act (RCRA) directing Conoco Pipe Line Company (CPLC) to undertake specific remedial measures related to a former oil reprocessing facility in Converse County, Wyoming. CPLC contested the Administrative Order, and has taken voluntary measures at the site together with other interested parties. On February 19, 1993, the U.S. Department of Justice filed a lawsuit against ten entities, including CPLC, to enforce the Order and collect penalties. CPLC has settled this matter with the U.S. Government, and that settlement has now been approved by the Court. CPLC along with four other companies has agreed to a cleanup of this site, which is estimated to cost between $4.4 million and $8.9 million, and pay as a group $300,000 in civil penalties. CPLC's share of this settlement is approximately 11%. CPLC plans to seek recovery of these amounts from other nonsettling parties. On May 13, 1994, the EPA, Region II, filed an Administrative Complaint seeking a $143,000 penalty alleging that DuPont's Deepwater, New Jersey, facility failed to file Emergency Planning Community Right-To-Know Act/Toxic Release Inventory report forms for two chemical substances. The parties are in settlement negotiation. 11 Form 10-Q On June 30, 1994, the California Department of Toxic Substances Control issued to DuPont's Antioch Works in Antioch, California, an Enforcement Order alleging violations of state hazardous waste regulations. The alleged violations center principally on the status of several tanks at the site. The Order would require DuPont to undertake certain remedial activities around the tanks and pay a fine of $200,000. DuPont has filed a Notice of Defense in the matter for a hearing before the Office of Administrative Hearings of the California Department of General Services. On July 1, 1994, the EPA issued a proposed Administrative Penalty Assessment to Conoco Inc. for alleged violations of the Clean Water Act related to wastewater discharges from Conoco's Lake Charles, Louisiana, refinery. The proposed Penalty Assessment seeks a civil penalty of $125,000 for alleged discharge permit exceedences that occurred during the past five years. The company's legal counsel has reached agreement with EPA on changes to be made to the Consent Agreement and Order assessing administra- tive penalties, and anticipates finalizing the Consent Agreement and Penalty Assessment within the next 60 to 90 days. On July 15, 1994, Conoco's Denver refinery received a Notice of Violation (NOV) and Cease and Desist Order from the State of Colorado for violations of its state clean water permit. The NOV alleges twenty-one violations of effluent parameters and other permit conditions from January 1993 to the present. While the NOV does not contain a demand for payment of a fine or penalty, Conoco has been advised that the State will be seeking a penalty in excess of $100,000 for these excursions. Conoco's Denver refinery has made substantial improvements to its wastewater operations in 1994 and expects to resolve this NOV by agreement with the State. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibit index filed with this Form 10-Q is on page 14. (b) Reports on Form 8-K 1. The company filed a Current Report on Form 8-K, dated April 25, 1994, in connection with Debt Securities that may be offered on a delayed or continuous basis under Registration Statements on Form S-3 (No. 33-39161 and No. 33-48128). Through this Form 8-K, the Registrant filed two press releases concerning (1) the settlement of 220 "Benlate" DF 50 fungicide lawsuits for a total of $214 million and (2) the first quarter 1994 earnings. 12 Form 10-Q SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. E. I. DU PONT DE NEMOURS AND COMPANY (Registrant) Date: August 9, 1994 -------------------------------------- By /s/C. L. Henry -------------------------------------- C. L. Henry Senior Vice President - DuPont Finance (As Duly Authorized Officer and Principal Financial and Accounting Officer) 13 Form 10-Q EXHIBIT INDEX Exhibit Number Description - ------- ----------- 12 Computation of Ratio of Earnings to Fixed Charges. 14 Exhibit 12 E. I. DU PONT DE NEMOURS AND COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) Six Months Ended Years Ended December 31 June 30, 1994 1993 1992 1991 1990 1989 Income Before Extraordinary Item and Transition Effect of Accounting Changes ........................ $1,434 $ 566 $ 975 $1,403 $2,310 $2,480 Provision for Income Taxes ............................ 1,085 392 836 1,415 1,844 1,844 Minority Interests in Earnings of Consolidated Subsidiaries ........................................ 6 5 10 6 3 24 Adjustment for Companies Accounted for by the Equity Method ................................ 5 41 6 35 29 38 Capitalized Interest .................................. (71) (194) (194) (197) (161) (108) Amortization of Capitalized Interest .................. 61 144 101 94 84 78 2,520 954 1,734 2,756 4,109 4,356 Fixed Charges: Interest and Debt Expense - Borrowings .............. 290 594 643 752 773 586 Adjustment for Companies Accounted for by the Equity Method - Interest and Debt Expense ......... 26 42 62 11 9 23 Capitalized Interest ................................ 71 194 194 197 161 108 Rental Expense Representative of Interest Factor .... 72 143 151 162 163 149 459 973 1,050 1,122 1,106 866 Total Adjusted Earnings Available for Payment of Fixed Charges ....................................... $2,979 $1,927 $2,784 $3,878 $5,215 $5,222 ====== ====== ====== ====== ====== ====== Number of Times Fixed Charges are Earned .............. 6.5 2.0 2.7 3.5 4.7 6.0 ====== ====== ====== ====== ====== ====== 15